Buy IP or PPOR first?

Discussion in 'Accounting and Tax' started by theparlourroom, 18th Jul, 2010.

  1. theparlourroom

    theparlourroom Member

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    I am just beginning my research into purchasing property and I was hoping to get some advice about the pros and cons of buying a PPOR vs IP first. Ultimately, I would like to own my own home as well as be earning income from several investment properties.

    At the moment, I can't afford to buy a PPOR in a suburb I'd ultimately like to live (unless it was a studio apartment, and that is *not* the dream). But I have read that if you take funds/equity from an IP to purchase a PPOR you lose the tax benefits. But the longer I wait to buy my own place, the longer I waste money on rent.

    Any advice you can give would be very much appreciated. Thanks in advance!
     
  2. Peter Parker

    Peter Parker Member

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    Buying IPs first is almost certainly the way to go:

    Advantages of this:

    * Interest is tax deductible
    * Other costs eg repairs & rates also deductible
    * Rental income helps serviceability
    * Greater flexibility of locations as your decision is driven purely by investment considerations, not your own convenience.
    * If renting, able to live in an area or in a house better than you can afford to buy

    Disadvantages:

    * Are subject to capital gains tax if you sell (but this is not a biggie, you only pay if you sell and this is in future dollars that you'd be in a better position to afford)
    * Don't get the first homebuyers grant on the purchase (but not really a problem as you can still get later when you do buy your own home)

    Main qualifications to this are if you're in a country town and/or can do the property up cheaply to increase its value while living in it. Or maybe are building your own home in the country (where the Vic govt offers a generous subsidy. In these cases buying your own home may be preferable to buying it as an IP. But in most cases the above points are more pertinent.
     
  3. monalisa

    monalisa Member

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    In NSW you will loose the stamp duty exemption when you purchase your PPOR - if the investment property is purchased first.... I think this was goint to be phased out at some point, but unsure.
     
    Last edited: 18th Jul, 2010
  4. artlez

    artlez Newbie

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    Yeah this is the case so many people live in it or 'live in it' for 6 months then move out.
     
  5. theparlourroom

    theparlourroom Member

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    I am in NSW, so stamp duty considerations are important to me. As I'm just beginning (and thus conservative) I think I will probably stick to IPs in NSW too. There is so much to consider! The research alone is a fulltime job. Thanks to everyone for your replies and help.
     
  6. monalisa

    monalisa Member

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    Good luck with it. Surely takes up a lot of time.